COURSE SYLLABUS

Public Economics

Fall 2015

BEIJING NORMAL UNIVERSITY

Time: Thursday 8:00-9:40 am

Location: Building Seven, 201

Lecturer: Jidong Chen

Contact Info: Houzhulou 1720, 4:00-5:30pm Friday

Prerequisite: Intermediate Microeconomic Theory, Calculus, Elementary Econometrics

Overview:

This course is an introduction to the economic analysis of the public sector and regulatory policies that shape the business environment in China. The role of government in efficiency and equity (distribution) aspects is emphasized. In the second half of the course, we will cover the most relevant topics about non-market strategy, the role of the government in China and the fundamental institutions that drive the economic development in China.

Learning Goals:

Learning Goal / Description
Knowledge
Comprehensiveness / Understand general concepts of public economics, especially the role of institutions and government in Chinese economy and business, and have a deep understanding of the government-business relationship in China.
Problem-Solving Capability / Analyze and evaluate arguments, draw conclusions supported by appropriate evidence, and present analytical problem-solving capability. Have an ability to apply the basic conceptual framework to analyze practical problems.
Communication Skills and Leadership / Demonstrate effective communication skills in business and with the government, and leadership in teamwork.
Innovation / Be able to integrate theories and methods, and deal with challenging problems in practice.
Entrepreneurship / Show the insight of developing new public and regulatory policies that shape a direction of healthy business environment in China.
Cross-Cultural Management Capability / Have an ability to understand culture conflict, can accept and respect cultural differences, and master the skills of cross-cultural communication with international vision.
Social Responsibility / Have a better understanding of social and ethical implications of public and regulatory policies.

Teaching Approach: half lecture half discussion

Texts and Materials:

Required Book:

Gruber, Jonathan, "Public Finance and Public Policy (Fourth Edition)," Worth Publishers, 2012

Another useful book:

Hyman, David, "Public Finance: A Contemporary Application of Theory to Policy (10th Edition)," South Western Press, 2010.

We will extensively use and read parts of the required book (JG), and the other book (DH) sometimes, as well several academic research papers. Some items are posted on Blackboard. The Blackboard web site of the course is available only to students registered for the course.

Grading:

Midterm Exam — 30% of the grade. The midterm is scheduled for Thursday Nov 5 from 8:05 am to 9:40 pm (in class).

Final Exam/Project — 30% of the grade.

Homework assignments — 30% of the grade. These assignments will be a mix of short (1-2 page) essays and problem sets.

Class participation (in-class quiz) — 10% of the grade.

Homework assignment and Late Papers Policy

Over the course of the semester, you will be assigned homework which is due on specified dates, unless stated otherwise. Late homework will be subject to an automatic deduction of one half of the grade that would have been awarded had the work been handed in by the deadline. Work submitted more than 24 hours after the deadline will receive no credit.

The nature of the homework assignments will vary; some will require a written response to the week's readings and others will be in the form of problems that you must solve. In all cases, I ask that you present your answers with a care for legibility and clarity.

Course Schedule:

[1] (Sept 10, 17) Introduction

Readings: DH Chapter 1

Part I Economic Basis for Government Activity

[2] (Sept 24) Theoretical Tools: Efficiency, Markets and Governments

Readings: JG Chapter 2, or DH Chapter 2,

[3] (Oct 8, Oct 15) Externalities and Government Policies

Readings: JG Chapter 5, or DH Chapter 3

[4] (Oct 15, Oct 22) Public Goods and Free Riding

Readings: JG Chapter 7, or DH Chapter 4

[5] (Oct 22, Oct 29) Mechanisms of Policy Making: A Public Choice Perspective

Readings: JG Chapter 9, or DH Chapter 5

[6] (Nov 5)

Midterm

Part II Economy and Government in China

[7] (Nov 12) History of China's Economic Reform in 1980s and 1990s

Readings:

Naughton, Barry, The Chinese Economy: Transitions and Growth, 2007. Chapter 4

[8] (Nov 19) Fiscal Decentralization: Chinese Style

Readings:

Xu, Chenggang, “The Fundamental Institutions of China’s Reforms and Development,” The Journal of Economic Literature, 2011, 49:4, 1076-1151.

Optional Readings:

Cai,Hongbinand DanielTreisman, 2006 “Did Government Decentralization CauseChina’s Economic Miracle.”World Politics, 58:505-535

Landry, Pierre F. 2008 "Decentralized authoritarianism in China."New York: Cambridge University Press

Montinola, Gabriella, Yingyi Qian, Barry R. Weingast, "Federalism, Chinese Style: The Political Basis for Economic Success in China,"World Politics, October 1995,48(1), pp.50-81.

Li,Hongbinand Li-AnZhou, 2005. "Political Turnover and Economic Performance: The Incentive Role of Personal Control in China."Journal of Public Economics, 89(9-10), pp. 1743-1762.

Qian, Yingyi and Chenggang Xu, "The M-form Hierarchy and China's Economic Reform,"European Economic Review, April, 1993. pp.541-548.

Qian, Yingyi and Chenggang Xu, "Why China's Economic Reforms Differ: The M-form Hierarchy and Entry/Expansion of the Non-State Sector,"The Economics of Transition,1(2): 135-170, 1993.

Maskin, Eric, Yingyi Qian, and Chenggang Xu (2000), “Incentives, Information, and Organizational Form.”Review of Economic Studies, April 2000, 67(2), pp. 359-78.

[9] (Nov 26) The Facts about China's Fiscal Decentralization

Readings:

Jia, Ruixue, Masayuki Kudamatsu, and David Seim."Complementary roles of connections and performance in political selection in China." Journal of the European Economic Association, forthcoming

Guo, Gang. "China's Local Political Budget Cycles."American Journal of Political Science53.3 (2009): 621-632.

Pan, Jennifer. "Measuring the Goals and Incentives of Local Chinese Officials." Harvard University, Department of Government, Working Paper(2013).

Optional Readings:

Persson, Petra and Ekaterina Zhuravskaya, "The Limits of Career Concerns in Federalism: Evidence from China." working paper

Lv, Xiaobo and Pierre Landry, Show Me the Money: Interjurisdiction Political Competition and Fiscal Extraction in China." American Political Science Review, 108(3): 706 - 722.

Kung, James Kai-sing, and Shuo Chen. "The tragedy of the Nomenklatura: Career incentives and political radicalism during China's great leap famine."American Political Science Review105.01 (2011): 27-45.

Part III Public Policies and Governance in China

[10] (Dec 3) Environmental Protection

Readings:

Lorentzen, Peter, Pierre Landry, and John Yasuda. * "Undermining authoritarian innovation: the power of China’s industrial giants."The Journal of Politics76.01 (2014): 182-194.

Chen, Yuyu, Avraham Ebenstein, Michael Greenstone, and Hongbin Li. * "Evidence on the impact of sustained exposure to air pollution on life expectancy from China’s Huai River policy."Proceedings of the National Academy of Sciences110, no. 32 (2013): 12936-12941.

Optional Readings:

Chen Yuyu, Ginger Zhe Jin, Naresh Kumar and Guang Shi “Gaming in Air Pollution Data? Lessons from China,” B. E. Journal of Economic Analysis & Policy (Advances tier) Advances, Volume 13, Issue 3, 2012.

Kahn, Matthew E.; Li, Peiand Zhao, Daxuan. "Water Pollution Progress at Borders: The Role of Changes in China's Political Promotion Incentives." AEJ: Economic Policy (forthcoming)

[11] (Dec 10) Housing and Land Market

Readings:

Cai, Hongbin, J. Vernon Henderson, and Qinghua Zhang. "China's land market auctions: evidence of corruption."The RAND journal of economics44.3 (2013): 488-521.

Optional Readings:

Kung, James Kai-sing, and Ting Chen. The Mystery of Authoritarian Growth: Land Revenue and the Career Concerns of China’s Local Leaders. working paper, HKUST, 2013.

Bai, Chong-En, Qi Li, and Min Ouyang. "Property taxes and home prices: A tale of two cities."Journal of Econometrics180.1 (2014): 1-15.

Wei, Shang-Jin, and Xiaobo Zhang. The competitive saving motive: Evidence from rising sex ratios and savings rates in China. No. w15093. National Bureau of Economic Research, 2009.

[12] (Dec 17) Income Inequality, Redistribution

Readings:

Gan, Li, "Income Inequality and Consumption in China." working paper

Xing, Chunbing, and Shi Li. "Residual wage inequality in urban China, 1995–2007."China Economic Review23.2 (2012): 205-222.

Optional Readings:

Ge, Suqin, and Dennis Tao Yang. "Changes in China's wage structure."Journal of the European Economic Association12.2 (2014): 300-336.

Lü, Xiaobo. "Equality of Educational Opportunity and Attitudes toward Income Inequality: Evidence from China."Quarterly Journal of Political Science8.3 (2013): 271-303.

[13] (Dec 24) Economics of Education

Readings:

JG, Chapter 11

Jia, Ruixue, and Ying Bai, "Elite Recruitment and Political Stability: The Impact of the Abolition of China's Civil Service Exam System." working paper

Jia, Ruixue, and Xiaohuan Lan, "Capitalism for the Children: Entrepreneurs with CadreParents Under Big Government." working paper

[14] (Dec 31) Governance: Credibility, Accountability, Responsiveness

Readings:

King, Gary, Jennifer Pan, and Margaret E. Roberts. "How censorship in China allows government criticism but silences collective expression."American Political Science Review107.02 (2013): 326-343.

Chen, Jidong, and Yiqing Xu. "Information Disclosure and Reform in Authoritarian Governance." (2014).

Chen, Jidong, Jennifer Pan, and Yiqing Xu. 2015 "Sources of Authoritarian Responsiveness: A Field Experiment in China."

Optional Readings:

Lorentzen, Peter. "China's Strategic Censorship."American Journal of Political Science58.2 (2014): 402-414.

Chen, Jidong, and Yiqing Xu. "Authoritarian Governance with Public Communication." (2014).

Distelhorst, Greg, and Yue Hou. 2014 "Ingroup bias in official behavior: A national field experiment in China."Quarterly Journal of Political Science: 203-230.

Strategies for Effective Reading

Whenever you read any scholarly work in social science, you should ask the following questions:

(1) What thesis does the author advance?

(2) Does the author provide a clear definition of key terms, and is this definition applied consistently throughout the argument?

(3) What assumptions are required for the author's inference to be successful? Does the author make explicit note of these assumptions and discuss their appropriateness in the given context?

(4) Does the author bring empirical evidence to bear on her argument? Is this evidence appropriate for the given theoretical argument?

When reading more technical material, you do not need to absorb every detail of any game-theoretic or econometric models that you encounter. Nonetheless, I strongly recommend that you do your best to follow the broad argument; I will always be on hand in office hours to fill in the gaps.

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